Universal Doesn't Renew with iTunes

Universal Music Group notified Apple last week that it will NOT be renewing its terms within an annual contract for the iTunes music store. The New York Times reported on this information, citing "anonymous" executives who didn't mind giving up the info, but wanted to make sure they didn't lose their jobs in the process.

The temporary plan will be more of an "at-will" marketing effort that allows Universal the option of removing songs from the iTunes store on short notice if they aren't happy with the $0.99 pricing that Steve Jobs has made such an issue in his negotiations.

What is really at stake here appears to be a sort of Texas Hold'em poker match between the two heavyweights. Universal controls enough record labels to amount to about 1/3 of ALL new releases sold in the US (though without further information that statistic is a pretty fast and loose one). If Universal pulls its music from iTunes, the store suffers losing a large chunk of it's new and popular library. The other side of the coin, however, shows Universal losing big, since sales of AAC recordings through iTunes accounted for over 15 percent of Universal's global revenue in the first quarter - over $200 million. At this point, I'd have to say that Universal has much more to lose.

Universal is obviously attempting to leverage a more powerful position with Apple. With Steve Jobs' commitment to the $0.99 song price I don't see that they will get very far. When one company attempts, through leverage, to change the entire business model of another company the end results are almost never pleasant. My guess is that the situation will either be status quo or Apple will offer some kind of olive branch that doesn't result in any real change for the pricing structure.

Apple's recent introduction of higher priced songs lacking copy protection marks a departure for the company from it's $0.99 policy, but with some added benefits to the user (though not lossless audio quality as some had hoped for.) Still, it is doubtful that this will have any positive bearing on Universal's position. To the contrary - it is yet another benchmark that the company will not be able to pass without adding some additional incentive for downloaders.